In March 2012 the government published the Finance Bill 2012 which included incentives for companies to hold, exploit or conduct development work towards patents. These provisions are called The Patent Box and can normally be claimed in addition to R&D tax credits.
The Patent Box is essentially a reduction in Corporation Tax to 10% applicable to the worldwide profits derived from patented items or processes. These concessions are being phased in between April 1st 2013 (60% relief) and April 1st 2017.
UK and European patents are potentially eligible, as are those of certain EEA states.
An eligible Patent Box claim might result from:
a) Sales of patented products – the qualifying company is required to have undertaken ‘qualifying development’ of the item or process.
b) Sales of spare parts.
c) Sales where the patented product is a component in a larger discrete unit. For example, if the patented item were an automotive spark plug, it is theoretically possible for Patent Box relief to apply to profits derived from sales of the whole engine.
d) Sales of licensed products – provided that the licence is exclusive.
e) The use of a patented process or tool.
f) Ownership of a portfolio of patents provided that the patents are ‘actively managed’. No precise definition of ‘active management’ is available.
g) Notional royalties derived from the use of a patented process in the supply of an unpatented service or product.
Conventional patents are drafted as broadly as possible to offer maximum protection against infringement. Such a patent requires extensive research by the Patent Office and third-party challenges can delay the process by years. A Patent Box patent application is driven by different motives with infringement protection often a subsidiary issue. The application’s scope can be reduced to the minimum required to secure the grant of a patent, simplifying and expediting the process. In future, companies might seek a fast-track patent before public disclosure of a new product or process to avoid prejudicing a subsequent patent application and the resultant tax concessions.
The above is not intended as legal or tax advice and specific guidance should be sought from HMRC and appropriate professional advisors.